Dedicated to PotterFreak_12
History Of Magic Homework - Lesson Two - Wizarding History.
Word count: 304 words
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Economic Bubble.
noun
/ˌiːkəˈnɒmɪk,ɛk-/ /ˈbʌb(ə)l/

1. An economic cycle characterized by rapid expansion followed by a contraction.

2. A surge in equity prices, often more than warranted by the fundamentals and usually in a particular sector, followed by a drastic drop in prices as a massive selloff occurs.

In 1378, the economical bubble of the wizarding world burst, this event was preceded directly by The Soap Blizzard.

A speculative bubble, or a market bubble, or a price bubble, or a financial bubble, or a speculative mania, or a balloon - also more commonly known as an economic bubble - is usually a business-like exchange in which an economic resource is traded at a price that is different from the value of the stock/product. A different way to describe this is that the trader is disparate from what would actually happen in the future.

As a result of it being hard to discern the true value of a product, they are only actually realized as an afterthought when the economic bubble bursts due to a sudden drop in prices. Both the rise and fall in prices are known as the positive feedback mechanism , which is different to negative feedback (which creates a state in which both the supply and demand of a product/service is equal). Within the economical bubble, prices are likely to go up and down a lot.

Some people, such as certain economists, do not believe that the economic bubble is real. That is in contrast to the people who believe that the fluctuations  in prices are all too real. A lot of theories have been produced and research conducted to show that the bubbles may be irrational (although some people argue otherwise). Both views are only possible if the bubble is forecast by a probability and its process is usually modeled using a Markov switching model.